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Advancing Austrian Economics, Liberty, and Peace

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Making Economic Sense
by Murray Rothbard
(Contents by Publication Date)

Chapter 85
First Step Back to Gold

September 1986 was an historic month in the history of United States monetary policy. For it is the first month in over fifty years--thanks to the heroic leadership of Ron Paul during his four terms in Congress--that the United States Treasury minted a genuine gold coin.

Gold coins were the standard money in the United States until Franklin Roosevelt repudiated the gold standard and confiscated the gold coins Americans possessed in 1933. Not only were these gold coins confiscated, under cover of the depression emergency, but possession not only of gold coins but of all gold (with the exception of designated amounts grudgingly allowed to collectors, dentists, jewelers, and industrial users) was prohibited.

During the 1970s, Congress made possession of gold by Americans legal, and now the Treasury itself acknowledges at least some monetary use by minting its own gold coins. We have come a long way, in only a decade, from total outlawry to Treasury minting.

It is true that the political motives for the new coin were not all of the purest. One of them was a way of trying to attract the gold coin business from the South African krugerrands, which somehow acquired a taint of apartheid by their mere production in South Africa. But the important thing is that gold is at least partially back in monetary use, and also that the public has a chance to see, look at, and invest in gold coins.

One of the ways by which government was able to weaken the gold standard, even before 1933, was to discourage its broad circulation as coins, and to convince the public that all the gold should be safely tucked away in the banks, in the form of bullion, rather than in general use as money in the form of coins. Since Americans were not using coins directly as money by 1933, it was relatively easy for the government to confiscate their coins without raising very much of an opposition.

The new American Eagle coin is a very convenient one for possible widespread use in the future. It usefully weighs exactly one troy ounce, and the front of the coin bears the familiar Saint-Gaudens design for the goddess Liberty that had been used on American gold coins from 1907 until 1933.

But while the minting of the new American Eagle coin is an excellent first step on the road back to sound money, much more needs to be done. It is important not to rest on our laurels.

For one thing, even though gold coins are now legal, the U.S. government has never relinquished its possession of the confiscated coins, nor given them back to their rightful owners, the possessors of U.S. dollars. So it is vitally important to denationalize the U.S. gold stock by returning it to private hands.

Second, there is what can only be considered a grisly joke perpetrated on us by the U.S. Treasury. The one-ounce gold coin is designated, like the pre-1933 coins, as "legal tender," but only at $50. In other words, if you owe someone $500, you can legally pay your creditor in ten one-ounce coins. But of course you would only do so if you were an idiot, since on the market gold is now worth approximately $420 an ounce. At the designated rate, who would choose to pay their creditors in $4,200 of gold to discharge a $500 debt?

The phony, artificially low gold price, is of course designed by the U.S. Treasury so as to make sure that no one would use these golds coins as money, that is, to make payments and discharge debt. Suppose, for example, that the government designated the one-ounce coin at a bit higher than the market price, say at $500. Then, everyone would rush to exchange their dollars for gold coins, and gold would swiftly replace dollars in circulation.

All this is a pleasant fantasy, of course, but even this superior system would not solve the major problem: what to do about the Federal Reserve and the banking system.

To solve that problem, it would not be enough merely to find a way to get the gold out of the hands of the Treasury. For that gold is technically owned by the Federal Reserve Banks, although kept in trust for the Fed by the Treasury at Fort Knox and other depositories. Furthermore, the Federal Reserve has the absolute monopoly on the printing of dollars, and that monopoly would remain even if people began to trade in dollars for Treasury gold coins. 

It is indeed important to denationalize gold--to get it out of Fort Knox and into the hands of the people. But it is just as, if not more, important to denationalize the dollar--that is, to tie the name "dollar" firmly and irretrievably to a fixed weight of gold. Every piece of gold at Fort Knox would be tied to the dollar, and then, and only then, the Federal Reserve System could be swiftly abolished, and the gold poured back into the hands of the public at the fixed dollar weights. To accomplish this task, those who wish to return the gold of the nation and the dollar from the government to the people will have to agree on the fixed weight.

It is best to pick the initial definition of the gold dollar at the most convenient rate. Certainly $50 an ounce of gold is not it. There are good arguments for the current market price, for higher than the current price, and for a price sufficiently high (or a dollar weight sufficiently low) so as to enable the Fed, upon liquidation, to pay off not only its own debts but also all bank demand deposits one-for-one in gold (which would require a gold price of approximately $1,600 per ounce). But within those parameters, it almost doesn't matter what price is chosen, so long as these reforms are effected as soon as possible, and the country returns to sound money. 

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